Auditors are concerned – What is happening in Kanger International? 

The auditors had spoken, and they are concerned (no pun intended) about the future prospects of Kanger. Now, the bigger question for investors is – what is waiting for the shareholders for the company?
 

 
Most might have dire thoughts about the company by now, but that is far from the truth.
In this quarter, the company suffered multiple one-off expenses, which includes:
•    RM2.5 million on impairment loss on inventories
•    RM31.1 million on impairment loss on trade and other receivables
•    RM3.6 million on impairment loss on other investments
•    RM10.5 million on impairment loss on intangible assets, and
•    RM77.4 million of fair value loss on investment properties amounting to RM77.4 million
This sums up to RM125.1 million of one-off and non-cash exhaustive loss for the quarter.
However, we must also factor in that there are some one-off income for the company, which includes:
•    RM3.1 million on gain on disposal of PPE, and
•    RM54.6 million on gain on disposal of subsidiary company
This sums up to RM57.7 million of one-off income for the quarter.
The net loss for the quarter under review amounted to RM75.1 million, and if you were to normalize the RM125.1 million one-off loss and RM57.7 million worth of one-off income, by right the company only suffered RM7.7 million in net loss.


 
At least for the latest 5 quarters ended, RM7.7 million is the lowest loss ever that the company had reported so far.
Also, this might be a kitchen sinking activity executed by the management to clean up the balance sheet. At least by now, the assets are considered at “book value”.
 


That being said, I wanted to highlight to investors that the PPE and investment properties of the company includes the Genting Highland project by Aset Kayamas.
It is understandable that the auditor must adjust the properties value based on 31st December 2021 cash flow forecast for the property.
But there is a very great chance that the company would write back the fair value loss and record a fair value gain in the next quarter, as we know borders are reopening by 1st April.
The Edge had also reported that the company is disposing its China-based bamboo flooring company, Ganzhou Kanger Industrial Co Ltd for RM20.0 million to Zeng QinHu. This would allow the company to realign their focus on the construction business, which generated RM45.9 million in revenue while the remaining were contributed by the newly acquired Sung Master.
Interestingly, both of the companies are closely related to Aset Kayamas, too.
The management had also disclosed their growth plans for Kanger in 2022.
 


Despite my doubts on the first plan, which is to involve in PPE related business, the (b) and (c) strategy is highly viable for the group, given how the construction business may flourish in 2022.
Imagine all the China tourist who floods to Genting in the next few months.
All in all, Kanger is pretty well-equipped to turnaround in tandem with a boom in property and construction sector this year. I believe the lack of selling pressure despite a concern from auditors signal a strong plus for the company.
The risk to reward ratio for Kanger is extremely attractive now.